Beware The Liabilities Associated With Security Deposits
By: David V. Chandler April 2017
Generally, when a landlord rents a residential property to a tenant, the landlord requires the tenant to provide a security deposit. While collecting a security deposit is beneficial in protecting the landlord, it also creates additional obligations which a landlord must strictly comply with. If a landlord fails to comply with these obligations, it may result in unforeseen liabilities and bar a landlord from seeking certain remedies against the tenant.
After the termination of a rental agreement, the security deposit can be applied to: the payment of any accrued rent; to reimburse a landlord for the amount of damages that the landlord has suffered or is likely to suffer due to a tenant’s noncompliance with the rental agreement or relevant law; and the unpaid utility charges that a tenant was obligated to pay under the rental agreement. However, the landlord cannot simply use the security deposit to pay for these expenses. When the rental agreement is terminated, the landlord must, within 45 days, either return the full deposit to the tenant or give the tenant written notice that the entire security deposit is not being returned.
This written notice must comply with specific requirements under Indiana Law. If a landlord is not returning the full deposit, the landlord must mail the tenant an itemized list of damages claimed for which the security deposit will be used. This itemized list must set forth the estimated costs of repair for each item and the amounts being assessed against the tenant under the terms of the rental agreement. Simply mailing a tenant written notice that they are not receiving their deposit back or merely listing a lump sum amount of damages will not be sufficient to meet the requirements of the written notice. Additionally, the written notice is required regardless of whether the tenant vacated the property pursuant to the rental agreement or was forced to vacate through eviction proceedings.
If a landlord fails to strictly comply with the timeframes and written notice requirements, a landlord can become liable for a tenant’s attorney fees in seeking the return of the deposit as well as having to return the security deposit in full. This is because, when the written notice requirements are not met, it is essentially an agreement by the landlord that no damages are owed by the tenant. Therefore, not only can failing to comply with the written notice requirements open the landlord up to liability for the tenant’s attorney fees and the amount of the deposit retained, it also waives the landlord’s right to seek damages for all of the expenses incurred in repairing any damage to the property caused by the tenant.
Due to the pitfalls landlords face regarding security deposits, the best practice for a landlord is to always provide a detailed and itemized list of damages to the tenant at the earliest opportunity following the termination of the rental agreement. Like any general requirement in law, there are several exceptions and additional pitfalls to avoid. We encourage both landlords and tenants seeking guidance on their rights and obligations concerning security deposits to contact the attorneys at ALLEN WELLMAN McNEW HARVEY, LLP at 317-468-2355.